Regulatory Considerations, Retained Earnings and Capital, Net EconomicValueAnalysis, Assets andMemberLoans,Investments, Earnings,Liquidity
REGULATORYCONSIDERATIONS
An integral part of a credit union’s investment policies, procedures and practices is the analysis of all institutions in which it has invested its surplus funds—including corporate credit unions.Part703of the NationalCreditUnionAdministration’s(NCUA)Rules andRegulations states:
“AFederal credit union must conduct and document a credit analysis on an investment and the issuing entity before purchasing it, except for investments issued or fully guaranteed as to principal and interest by the U.S. government or its agencies, enterprises, or corporations or fully insured(including accumulated interest)by theNationalCreditUnionAdministration or theFederalDepositInsuranceCorporation.AFederal credit union must update this analysis at least annually for as long as it holds the investment.”
ASSETS (inthousands)
D31, ECEMBER 2023 2022 2021 2020 2019
Cash and Uncollected Cash Items$1,000,163$549,266$1,380,273$1,388,367$500,608
Certificates of Deposit and balances with other financial institutions--308328248
U.S. Government agency securities703,966845,633855,627877,066473,819
Asset-backed Securities80,72782,240123,316187,332328,134 Federal Home Loan Bank Stock5,73914,9185,1575,4259,722
Central Liquidity Facility membership stock--20,37220,372-
CUSO Investments2,4112,6853,3893,0972,706
Total Investments$792,843$945,476$1,008,169$1,093,620$814,629
Unrealized Gains and Losses onAFS(12,206)(19,050)2,4872,149(581)
Net Investments$780,637$926,426$1,010,656$1,095,769$814,048 Member Loans32,98154,6771,4543,5975,531
Premises and Equipment, net3,3803,8163,3153,5343,506
NCUSIF Capitalization Deposit650666679672659
All OtherAssets12,70811,1728,0249,04315,553
TOTALASSETS$1,830,519$1,546,023$2,404,401$2,500,982$1,339,905
ThoughNCUA’s investment regulation specifically exempts state-chartered credit unions, many are using the regulation as a guideline in their investment policies, procedures, and practices.Recognizing the analysis of a corporate credit union can be burdensome, we are providing you with this summary analysis ofVolunteer CorporateCreditUnion.
L&E IABILITIESQUITY
(inthousands)
D31, ECEMBER 2023 2022 2021 2020 2019
Deposits in Collection$117,921$82,194$41,681$84,499$80,988
Accrued expenses and other liabilities4,2053,4723,5991,846205
Notes Payable303,051178,757---
Total Liabilities$425,177$264,423$45,280$86,345$81,193 Daily Shares1,246,5681,147,3932,228,9322,303,1561,154,141 Term Shares158486683851233
Total Shares$1,246,726$1,147,879$2,229,615$2,304,007$1,154,374
Perpetual Contributed Capital69,23069,24269,24269,24269,242 Equity acquired in merger863863863863863
Retained Earnings100,72982,66656,91438,37634,814
Unrealized Gains and Losses onAFS(12,206)(19,050)2,4872,149(581) Total Capital$158,616$133,721$129,506$110,630$104,338 TOTAL LIABILITIESAND EQUITY$1,830,519$1,546,023$2,404,401$2,500,982$1,339,905
REGULATORYCONSIDERATIONS (Continued)
CapitalRequirements ofNCUA’sRules andRegulations704
“(1)A corporate credit union must maintain at all times:
(i)A leverage ratio of 4.0 percent or greater;
(ii)ATier 1 risk-based capital ratio of 4.0 percent or greater; and (iii)A total risk-based capital ratio of 8.0 percent or greater.
(2)To ensure it meets its capital requirements, a corporate credit union must develop and ensure implementation of written short- and long-term capital goals, objectives, and strategies which provide for the building of capital consistent with regulatory requirements, the maintenance of sufficient capital to support the risk exposures that may arise from current and projected activities, and the periodic review and reassessment of the capital position of the corporate credit union.
(3) Beginning with the first call report submitted on or after October 21, 2013, a corporate credit union must calculate and report to NCUA the ratio of its retained earnings to its moving daily average net assets. If this ratio is less than 0.45 percent, the corporate credit union must, within 30 days, submit a retained earnings accumulation plan to the NCUA for NCUA’s approval.The plan must contain a detailed explanation of how the corporate credit union will accumulate earnings sufficient to meet all its future minimum leverage ratio requirements, including specific semiannual milestones for accumulating retained earnings. In the case of a state-chartered corporate credit union, the NCUA will consult with the appropriate state supervisory authority (SSA) before making a determination to approve or disapprove the plan, and will provide the SSA a copy of the completed plan. If the corporate credit union fails to submit a plan acceptable to NCUA, or fails to comply with any element of a plan approved by NCUA, the corporate will immediately be classified as significantly undercapitalized or, if already significantly undercapitalized, as critically undercapitalized for purposes of prompt corrective actions.The corporate credit union will be subject to all the associated actions under §704.4.”
Definitions Under Part 704 of NCUA’s Rules and Regulations
Leverage ratio means the ratio ofTier 1 capital to moving daily average net assets.
Retained earnings means undivided earnings, regular reserve, reserve for contingencies, supplemental reserves, reserve for losses, GAAP equity acquired in a merger, and other appropriations from undivided earnings as designated by management or the NCUA.
Total capital means the sum ofTier 1 capital andTier 2 capital, less the corporate credit union’s equity investments not otherwise deducted when calculatingTier 1 capital.
Tier 1 capital means the sum of paragraphs (1) and (2) of this definition from which items in paragraphs (3) through (7) are deducted:
RETAINEDEARNINGSRATIO
(1) Retained earnings;
(2) Perpetual contributed capital;
(3) Deduct the amount of the corporate credit union’s intangible assets that exceed one half percent of its moving daily average net assets (however, the NCUA may direct the corporate credit union to add back some of these assets on the NCUA’s own initiative, or the NCUA’s approval of petition from the applicable state regulator or application from the corporate credit union);
(4) Deduct investments, both equity and debt, in unconsolidated CUSOs;
(5) Deduct an amount equal to any PCC or NCA that the corporate credit union maintains at another corporate credit union;
(6) Deduct any amount of PCC received from federally insured credit unions that causes PCC minus retained earnings, all divided by moving daily average net assets, to exceed two percent when a corporate credit union’s retained earnings ratio is less than two and a half percent.
(7) Deduct any natural person credit union subordinated debt instrument held by the corporate credit union
REGULATORYCONSIDERATIONS (Continued)
DefinitionsUnderPart704ofNCUA’sRules andRegulations
Tier 1 risk-based capital ratio means the ratio ofTier 1 capital to the moving monthly average net risk-weighted assets.
Tier 2 capital means the sum of paragraphs (1) through (4) of this definition:
(1) Nonperpetual capital accounts, as amortized under §704.3(b)(3);
(2)Allowance for loan and lease losses calculated under GAAP to a maximum of 1.25 percent of risk-weighted assets;
(3)Any PCC deducted fromTier 1 capital; and
(4) Forty-five percent of unrealized gains on available-for-sale equity securities with readily determinable fair values. Unrealized gains are unrealized holding gains, net of unrealized holding losses, calculated as the amount, if any, by which fair value exceeds historical cost. NCUA may disallow such inclusion in the calculation ofTier 2 capital if NCUA determines that the securities are not prudently valued.
Total risk-based capital ratio means the ratio of total capital to moving monthly average net riskweighted assets.
Any amounts deducted from the numerator of theratios are also deducted from aforementioned the denominator.
RETAINEDEARNINGSANDCAPITAL
Acorporate credit union’s balance sheet reflects the liquidity position and cash flows of its member credit unions.Therefore, it is not unusual for a corporate credit union to experience asset fluctuations of25percent or more, not only from month-to-month, but at times within periods of less than30days.In addition, corporate credit union month-end assets are often significantly inflated due to routine payrolls that flow into their member credit unions.In recognition of the distortion such fluctuations can cause,NCUAcorporate credit union regulations call for the use of the corporates’moving daily average net assets(MDANA) when calculating key financial ratios.
While cyclical fluctuations are experienced in any given year, interest rate increases led to an overall decrease in the size ofVolCorp’s balance sheet during 2023.This resulted in a25percent year over year decline inMDANAfrom $1.82billion atDecember31, 2022, to $1.37 billion at December31, 2023.
While the decline inMDANAwas additive to regulatory capital ratios, both a successful year of business operations and additional claim payments from theU.S.Central AssetManagementEstate enabled significant growth of retained earnings and capital, ending 2023at $101.6and $168.4million, respectively, which represents increases of $18.1and $18.3million, respectively, from their 2022 ending balances.This resulted in a retained earnings ratio of7.42percent at December31, 2023, as compared to4.60percent at December31, 2022.At year-end2023,VolCorp’sTier 1Capital or leverage ratio was“well capitalized”at 12.30percent, an increase from8.26percent at December31, 2022, and well above the5.00percent floor for a corporate credit union to be considered “well capitalized”.
NETECONOMICVALUENALYSIS A
TheNEVof a corporate credit union is defined as the difference between the book value of regulatory total capital and the mark-to-market value of assets and liabilities at current interest rates.SuchNEVis computed as the sum of the present values of a time series of cash flows from assets(including the value of embedded options)minus the sum of the present values of a time series of cash flows from liabilities(including the value of embedded options).NEVis a point-in-time measurement based on a given balance sheet date, and is measured in terms of aBase scenario(i.e., the existing market interest rate environment on said balance sheet date)and certain rate shock scenarios keyed off suchBase scenario in intervals of +/-100,200and300basis points(collectively, the industry-standard rate shock scenarios).Acorporate’sBaseNEVRatio is computed by dividing the residualBaseNEVby the mark-to-market value of theBase total assets.NEVis a measure of, and theNEVRatio is an indicator of, the inherent interest rate risk embedded in the balance sheet structure of a financial institution.BaseNEVserves as a proxy assessment of the residual post-liquidation value of the financial institution under certain interest rate environments.UnderPart704.8(d)(1)(ii)of itsRules and Regulations for all corporate credit unions, those corporates operating underBasePlus authority as granted by theNCUABoard ofDirectors must maintain a minimumBaseNEVRatio of2.00percent and a maximum permissible downwardNEVshift of negative20.00percent fromBaseNEV.In addition, theNCUABoard set identical minimumNEVRatio limits and maximum permissible downwardNEVshift limits for the aforementioned industry-standard rate shock scenarios.By definition, shocking a corporate’s balance sheet means determining/measuring the impact onBaseNEVand theBaseNEVRatio of an instantaneous, parallel, and sustained upward and/or downward shift of market interest rates.TheNEVshift represents the percentage increase and/or decrease ofNEVunder any or all of the industry-standard rate shock scenarios.
MOVINGAVERAGEASSETS
DAILY (inthousands)
$1,800,000 1,700,000 1,600,000 1,500,000 1,400,000 1,300,000 1,200,000 1,100,000 1,000,000
The permissible downwardNEVshift is dependent, in part, upon the level of authority granted each corporate credit union by theNCUABoard.As a starting point, all corporate credit unions have the authority to operate at Base level.At this level, the permissible shift in the corporates’NEVRatio is negative15.00percent under the industry-standard rate shock scenarios.Each corporate credit union may petition theNCUABoard to operate under expanded authority.To obtain such expanded authority, the corporate credit union must meet all the requirements ofPart704of theNCUA’sRules and Regulations and fulfill additional capital, management, infrastructure, and asset liability requirements. InSeptember1997,VolCorp’sBoard ofDirectors requested authority to operate at the expanded level referred to asBasePlus.InNovember1997,VolCorp became the first corporate credit union to receive authority by theNCUABoard to operate aboveBase level atBasePlus authority level.At suchBasePlus level,VolCorp’s permissible negativeNEVshift expanded downward to negative20.00percent from negative15.00percent underBase authority.
As ofDecember31,2023,VolCorp’sBaseNEV totaled $158.7million, theBaseNEVRatio was8.67percent, and theNEVshift showed a decrease of $10.1 million/-6.33percent under the regulatory +300basis point rate shock scenario.These results were well within theNEVrisk limits as defined and stipulated by the aforementionedNCUAregulation.The following tabulation provides full disclosure of the impact of theNCUAregulatory interest rate shock scenarios onVolCorp’sBase NEVandBaseNEVRatio as ofDecember31,2023:
%NEV (from Base)
$15 ,734$155,467152,144$148,683 8$ 0$(267)()$() $3,$6,58910,051 0.00%(06)%(15)%(33)% 2.4.6.
NEV (from Base, thous.)
NEV (thous.)
ASSETS
Cash andInvestments
The quality of a financial institution’s assets is one of the most crucial factors contributing to its financial soundness.As ofDecember31, 2023,99percent ofVolCorp’s assets consisted of cash and uncollected cash items, loans to member credit unions, and high quality, low credit-risk investments.Cash holdings are concentrated in theFederalReserveBank.
Furthermore, as ofDecember31, 2023,99percent ofVolCorp’s marketable securities holdings were rated AAAorAAbyS&P, and89percent were issued or guaranteed byU.S.GovernmentAgencies.VolCorp monitors the quality of its assets through extensive monthly credit analyses and portfolio modeling.As of December31,2023, the continued quality and structure ofVolCorp’s portfolio was illustrated in thatVolCorp had a marketable securities portfolio totaling $784.7million in amortized cost with a net unrealized loss of only $12.2million.Considering the sharp upward interest rate movement over the course of 2022and2023, the mere1.6percent net unrealized loss on marketable securities at year-end reflects a heavy concentration in floating rate and short-term instruments.
When making investment decisions, VolCorp has always prioritized safety, liquidity, and yield.In order to minimize credit risk,VolCorp’s policies allow funds to be placed only in limited government-sponsored enterprises and agencies, theFederalReserve Bank, or in other highly rated securities and top-rated banks and domestically chartered corporations. These policies further limit investment in banks, corporations, and securities individually and in aggregate, and require extensive analysis and monitoring.VolCorp’s approvedinstitution analyses consider size, capital adequacy, asset quality, management, earnings performance, and liquidity.The quality of assets held is ultimately reflected in VolCorp’sTier1risk-based capital ratio of94.82percent atDecember 31,2023, which is much greater than its regulatory“well capitalized” threshold of6.00percent.
(DECEMBER31,2023)
MemberLoans
VolCorp has the responsibility of serving as a primary source of liquidity to meet the needs of its membership, while also protecting the deposits of its individual member credit unions.In response to these needs, as of December31, 2023,VolCorp had extended254lines of credit to member credit unions totaling $2.07billion of funding commitments.Further as of that date, outstanding loans and lines of credit to members totaled $33.0million, or1.8percent of total assets, with all loans showing as current without exception.The quality of the loan portfolio is governed by the loan policy established by theBoard ofDirectors and by the procedures established by management to effect full implementation of said policies to include strict adherence to consistent underwriting practices.Each line of credit is collateralized and secured byVolCorp filing a UCC1FinancingStatement to establish and perfect a first priority security interest in designated assets of the borrowing credit union.Aproactive credit review of all lines is performed quarterly by way of detailed tracking of select financial health ratios.Based on this review, it is determined which credit unions require monitoring on a more frequent basis and which credit unions may benefit fromVolCorp reaching out to offer additional assistance.Since its charter,VolCorp has never charged off a loan to a member credit union and has a perfect record of zero credit losses.
EARNINGS
Like all credit unions,VolCorp is a not-for-profit financial cooperative, existing solely for the benefit of its members.VolCorp strives to help members improve their financial position by providing superb yet costeffective services and attractive investment yields on surplus funds.VolCorp does not maximize earnings at the expense of its member owners, nor seek to increase earnings by jeopardizing the safety of the membership’s shares and capital through high-risk investment practices.Even so,VolCorp must maintain a stable earnings position in order to pay dividends, cover budgeted expenses, innovate, maintain capital adequacy, and meet statutory reserve requirements.
VolCorp’s earnings and member share rates both benefited during 2023from relatively elevated short-term interest rates, contributing to the year’s net interest income of $20.4million.U.S.Central distributions and growth in service-driven revenue bolstered non-interest operating income to $17.1million.After operating expenses of $17.7million and net non-operating income of $653thousand, 2023’s net income rested at $20.6million for a150-basis point return onMDANA.
COMPARATIVEINCOME (inthousands)
LIQUIDITY
VolCorp balances the responsibilities of investing to provide competitive returns with the need to maintain sufficient liquidity to meet members’cash flow needs.VolCorp holds adequate cash and overnight investments to provide for reasonable cash flow demands while managing an investment portfolio predominantly comprised of floating rate instruments which are, in general, less sensitive to unfavorable valuations in an upward interest rate environment relative to comparable fixed rate investments.Management understands and anticipates daily and seasonal variances, but also plans for unexpected outflows and member needs.VolCorp’s liquidity position is monitored daily and adjusted as necessary.
As ofDecember31, 2023, the cash and cash equivalents balance of $1billion represented55percent of assets, highlighting a balance sheet well prepared to provide for member liquidity.However, VolCorp also has access to multiple lines of credit.VolCorp maintains credit arrangements with theFederalReserveBank, theFederalHomeLoanBank ofCincinnati, and holds federal funds lines of credit with regional banks.At year-end 2023 these arrangements represented total contractual amounts of $203, $379, and $85million respectively, of which $364million was available net of an outstandingBankTermFundingProgram advance of $203million and aFHLBovernight advance of $100million.
VolCorp also acts as an agent in theFederalReserveBank’sExcessBalanceAccount(EBA)program for its membership.TheEBAallows excess member deposits to reside on balance sheet with theFederalReserve Bank, providingVolCorp the flexibility to manage its balance sheet with access to additional member funding if necessary.AtDecember31, 2023, member deposits in theEBAtotaled $944million.
ments,
Volunteer Corporate Credit Union and Subsidiary
December 31, 2023 and 2022
INDEPENDENT AUDITOR’S REPORT
To theBoardofDirectors andSupervisoryCommitteeof VolunteerCorporate CreditUnionandSubsidiary
Report on the Financial Statements and Internal Control
Opinions on the Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated financial statements of Volunteer Corporate Credit Union and Subsidiary, which comprise the consolidated balance sheets as of December 31, 2023 and 2022, and the related consolidated statements of income, comprehensive income (loss), changes in members’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Volunteer Corporate Credit Union and Subsidiary as of December 31, 2023 and 2022, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generallyacceptedintheUnitedStates ofAmerica.
We also have audited Volunteer Corporate Credit Union and Subsidiary’s internal control over financial reporting, including controls over the preparation of regulatory financial statements in accordance with the instructions for the National Credit Union Administration (NCUA) 5310 –Corporate Credit Union Call Report, as of December 31, 2023, based on criteria established in Internal Control ‐ Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, Volunteer Corporate Credit Union and Subsidiary maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control ‐ Integrated Framework(2013) issuedbyCOSO.
Basis for Opinions
We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audits of the Financial Statements and Internal Control Over Financial Reporting section of our report. We are required to be independent of Volunteer Corporate Credit Union and Subsidiary and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to ouraudits.Webelieve thattheauditevidencewe haveobtainedis sufficientandappropriateto provideabasisforourauditopinions.
Responsibilities of Management for the Financial Statements and Internal Control Over Financial Reporting
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of effective internal control over financial reporting relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Management is also responsible for its assessment about the effectiveness of internal control over financial reporting, included in the accompanying Management Report Regarding Statement of Management's Responsibilities, Compliance with Designated Laws and Regulations, and Management's AssessmentofInternalControloverFinancialReporting.
In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about Volunteer Corporate Credit Union and Subsidiary’s ability to continue as a going concern within one yearafterthedatethatthe consolidatedfinancialstatements areavailableto beissued.
Auditor’s Responsibilities for the Audits of the Financial Statements and Internal Control Over Financial Reporting
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and about whether effective internal control over financial reporting was maintained in all material respects,andto issue anauditor’s reportthatincludes ouropinions.
Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit of financial statements or an audit of internal control over financial reporting conducted in accordance with GAAS will always detect a material misstatement or a material weakness when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered to be material if there is a substantial likelihood that, individually or in the aggregate, they would influencethejudgmentmadebyareasonableuserbasedonthe consolidatedfinancialstatements.
In performing anauditofthe consolidatedfinancialstatements andanauditofinternalcontrolover financialreportinginaccordancewithgenerallyacceptedauditingstandards,we:
Exerciseprofessionaljudgmentandmaintainprofessionalskepticism throughoutthe audits.
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regardingthe amounts anddisclosures inthe consolidatedfinancialstatements.
Obtain an understanding of internalcontrolrelevanttotheconsolidatedfinancialstatement auditinordertodesignauditprocedures thatareappropriateinthecircumstances.
Obtain an understanding of internal control over financial reporting relevant to the audit of internal control over financial reporting, assess the risks that a material weakness exists, and test and evaluate the design and operating effectiveness of internal control over financialreportingbasedontheassessedrisk.
Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentationofthe consolidatedfinancialstatements.
Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about Volunteer Corporate Credit Union and Subsidiary’s abilityto continue asagoingconcernforareasonableperiodoftime.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal controlrelatedmatters thatweidentifiedduringtheconsolidatedfinancialstatementaudit.
Definition and Inherent Limitations of Internal Control over Financial Reporting
An institution’s internal control over financial reporting is a process effected by those charged with governance, management, and other personnel, designed to provide reasonable assurance regarding the preparation of reliable consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. Because management’s assessment and our audit were conducted to meet the reporting requirements of Section 704.15 of the NCUA Regulations, our audit of Volunteer Corporate Credit Union and Subsidiary’s internal control over financial reporting included controls over the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America and controls over the preparation of schedules equivalent to basic financial statements in accordance with the instructions for the National Credit Union Administration NCUA 5310 –Corporate Credit Union Call Report. An institution’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the institution; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the institution are being made only in accordance with authorizations of management and those charged with governance; and (3) provide reasonable assurance regarding prevention, or timely detection and correction of unauthorized acquisition, use, or disposition of the institution’s assets that could have amaterialeffectontheconsolidatedfinancialstatements.
Because of its inherent limitations, internal control over financial reporting may not prevent, or detect and correct, misstatements. Also, projections of any assessment of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,orthatthedegreeofcompliancewithpolicies orprocedures maydeteriorate.
Nashville,Tennessee
June4,2024
Thousands)
FortheYearsEndedDecember31, 2023 2022
The accompanying notes are an integral part of these consolidated financial statements.
Volunteer Corporate Credit Union and Subsidiary Consolidated Statements of Cash Flows (In Thousands)
FortheYearsEndedDecember31, 2023 2022 Supplementalcashflowinformation: Interestpaid $80,471$37,117 Non-cashitem-Unrealizedgain(loss)onavailable forsalesecurities $6,844$(21,537)
The accompanying notes are an integral part of these consolidated financial statements. - 10 -
Note 1: DESCRIPTION OF BUSINESS
Volunteer Corporate Credit Union and Subsidiary(VolCorp) was createdinApril1981 bythe general assembly of the State of Tennessee to function as a credit union support system to credit unions in Tennessee to facilitatemergers,jointventures,andcooperativeefforts andto providecreditunions with investment, liquidity, and payment system services. VolCorp is regulated by the Tennessee Department of Financial Institutions’ Credit Union Division and the National Credit Union Administration(NCUA).
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of VolCorp conform to accounting principles generally accepted in the United States of America and to general practices within the credit union industry. The following representthemoresignificantofthosepolicies andpractices:
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of VolCorp and its wholly-owned subsidiary, Symphony, LLC. Symphony, LLC was formed in November 2020. All significantintercompanybalances andtransactionshavebeeneliminatedinconsolidation.
Basis of Accounting
The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The Financial Accounting Standards Board (FASB) provides authoritative guidance regarding U.S. GAAP through the Accounting Standards Codification (ASC) and related AccountingStandards Updates (ASUs).
Use of Estimates
The preparation of U.S. GAAP consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Estimates that are particularly susceptible to significant change in the near term are relatedto estimatingthe fairvalue offinancialinstruments andthe statusofcontingencies.
Financial Instruments and Concentrations of Credit Risk
In the normal course of business, VolCorp invests in highly rated domestic corporations and uses nationally recognized broker/dealers in the execution of trades for financial instruments. Exposure to individual counterparties may be significant. In providing financial services solely to the credit unionindustry,VolCorpis dependentuponthe viabilityofthatindustry.
At December 31, 2023, VolCorp had $3,583 in deposits held at other financial institutions that were inexcessofFederalDepositInsuranceCorporationcoveragelimits.
Thousands)
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash and Cash Equivalents
Cash and cash equivalents includes cash, deposits held at other financial institutions, and uncollectedcashitemswithoriginalmaturities fewerthan90days.
Uncollected Cash Items and Deposits in Collection
These accounts represent deposits made by VolCorp’s members that have not cleared the Federal Reserve Bank (Federal Reserve). Such amounts generally become available for investment or withdrawal by members within one to three days. The uncollected cash items represent the amounts due from the Federal Reserve, and the deposits in collection represent the amount due to thememberswhentheybecomeavailable.Theseamounts arenotinterestbearing.
Transactions as Agent
VolCorp acts as an agent in facilitating overnight investment transactions between participating member credit unions and the Federal Reserve. Transactions with the Federal Reserve are facilitated via the Excess Balance Account (EBA) pursuant to Regulation D. VolCorp acts as intermediary for these transactions but is not otherwise obligated by the transaction. VolCorp's consolidated financial statements do not reflect these transactions except for the fees earned. At December 31, 2023 and 2022, VolCorp was agent for participating member credit unions on EBA funds totaling$943,841 and$827,845, respectively.
Federal Home Loan Bank stock, at Cost
Federal Home Loan Bank (FHLB) capital stock, can only be sold at par or a value as determined by the issuinginstitutionandonlytotherespectiveinstitutionorto anothermemberinstitution.These securities are recorded at cost and evaluated annually for possible impairment based on ultimate recoveryofparvalue.Bothcashandstockdividendsarereportedas income.
Securities
VolCorp has adopted Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 320 Debt and Equity Securities which requires all investments in debt securities and all investments in equity securities that have readily determinable fair values to be classified intothreecategories as follows:
TradingSecurities
Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value with unrealized gains and losses included in earnings. No securities have been classified as tradingsecurities.
SecuritiesHeldtoMaturity
Debt securities that VolCorp has the positive intent and ability to hold to maturity are classified as held to maturity securities and reported at amortized cost using a method that doesnotdiffermateriallyfromthelevelinterestyieldmethod.
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Securities (continued)
Securities Available for Sale
Debt securities not classified as either held to maturity debt securities or trading securities are classified as available for sale securities and reported at estimated fair value with unrealized gains and losses excluded from earnings and reported as other comprehensive income (loss) within members’ equity.
If quoted market prices are not available, fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows.
Premiums and discounts are recognized in interest income using the interest method over the period until maturity or the expected maturity date based on prepayments. Gains and losses on investment dispositions are recognized using the specific identification method for determining the cost of securities sold.
A debt security is placed on nonaccrual status at the time any principal or interest payments become 90 days delinquent. Interest accrued but not received for a security placed on nonaccrual is reversed against interest income. No debt securities are on nonaccrual status as of December 31, 2023.
Allowance for Credit Losses – Available‐for‐Sale Securities
For available‐for‐sale debt securities in an unrealized loss position, VolCorp first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities available‐for‐sale that do not meet the aforementioned criteria, VolCorp evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.
Changes in the allowance for credit losses are recorded as credit loss expense (or reversal). Losses are charged against the allowance when management believes the uncollectibility of an available‐for‐sale security is confirmed or when either of the criteria regarding the intent or requirement to sell is met.
Thousands)
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Credit Losses – Available-for-Sale Securities (continued)
Accrued interest receivable on available-for-sale debt securities totaled $4,304 at December 31, 2023andis excludedfromtheestimateofcreditlosses.
As of December 31, 2023, there is no allowance for credit losses recorded on available-for-sale securities.
Investment in Credit Union Service Organizations
Investments in Credit Union Service Organizations (CUSOs) are recorded usingtheequitymethodof accounting for investments in entities in which it has an ownership interest, but does not exercise a controlling interest in the operating and financial policies of an investee. Under this method, an investment is carried at the acquisition cost, plus the CUSO's equity in undistributed earnings or losses since acquisition. VolCorp periodically tests its investments for potential impairment whenever events and circumstances indicate the need for such assessment. The equity method is considered appropriate due to either VolCorp’s percentage of ownership or the ability to exert influenceovertheCUSOs.
Loans to Members and Member Affiliates
Loans are stated at unpaid principal balances. No allowance for credit losses has been established as all outstanding loans are secured by a general or specific pledge of the member credit unions’ assets, and there have been no historical losses. Interest on loans is recognized over the terms of theloans andiscalculatedonprincipalamounts outstanding.
Premises and Equipment, net
Land is carried at cost. Premises and equipment are carried at cost, net of accumulated depreciation. Premises and equipment are depreciated using the straight-line method over the estimatedusefullives ofthe relatedassets whichprimarilyrangefrom2 to50years.
Long-Term Assets
Premises and equipment and other long-term assets are reviewed for impairment when events indicate that their carrying amount may not be recoverable from future undiscounted cash flows. If impaired,theassets arerecordedatfairvalue.
Income Taxes
VolCorp is exempt by statute, from federal and state taxes on income related to its exempt purposes. However, VolCorp is subject to unrelated business income tax as discussed below. Accordingly, no provision for income taxes is included in the accompanying consolidated statements ofincome.
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes (continued)
The IRS and certain state taxing authorities are currently revisiting what, if any, products and services provided by state chartered credit unions are subject to unrelated business income tax (UBIT). There is little guidance in the IRS regulation on what activities should be subject to UBIT. The IRS issued guidance in the form of technical advice memorandums. As a result, there is uncertainty regarding whether state chartered credit unions should pay income tax on certain types of net taxable income from activities that may be considered by taxing authorities as unrelated to the purpose for which VolCorp was granted non‐taxable status. In the opinion of management, any liability resulting from taxing authorities imposing income taxes on the net taxable income from activities deemed unrelated to VolCorp’s non‐taxable status is not expected to have a material effect on VolCorp’s financial position or results of operations.
VolCorp has adopted FASB ASC 740, Income Taxes, which prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. FASB ASC 740 also provides guidance on de‐recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Management evaluates the tax positions taken on tax filings and consults with outside professionals in evaluating the likelihood of unfavorable results from any such tax positions. The tax years from 2020 and forward remain open to tax audits; however, there are currently no audits for any tax periods in progress.
National Credit Union Share Insurance Fund Deposit and Insurance Premiums
The deposit in the National Credit Union Share Insurance Fund (NCUSIF) is in accordance with NCUA regulations, which require the maintenance of a deposit by each insured credit union in an amount equal to one percent of its insured shares. The deposit will be refunded to VolCorp if its insurance coverage is terminated, it converts to insurance coverage from another source, or the operations of the fund are transferred from the NCUA Board. VolCorp is required to pay a percentage of total insured shares as insurance premiums to the NCUSIF unless the NCUA Board waives the payment. No payments were made during 2023 and 2022.
Perpetual Contributed Capital (PCC)
PCC is a permanent, non‐cumulative equity investment. Payment of dividends is based on available earnings and is not guaranteed. PCC, in the event of liquidation, is subordinate to all other liabilities of VolCorp. Dividends declared on PCC are determined by management and approved by the Board of Directors based on an evaluation of current and future market conditions.
Comprehensive Income (Loss)
Comprehensive income (loss) consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on debt securities available for sale, which are also recognized as a separate component of members’ equity.
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are currently such matters that will haveamaterialeffectonthe consolidatedfinancialstatements.
Restrictions on Cash
Therewereno restrictions orrequirements relatedto cashatDecember31,2023and2022.
Fair Value of Financial Instruments
VolCorp has an established process for determining fair values. Fair value is based upon quoted market prices, when available. If listed prices or quotes are not available, fair value is based upon pricing by an independent outsourced firm which uses proprietary models including market data, interest rate yield curves, option volatilities and other third party information. Management reviews the methodology and results of the pricing by the independent outsourced firm. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. Furthermore, while VolCorp believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reportingdate.
Generally accepted accounting principles have a three-level valuation hierarchy for fair value measurements. A financial instrument’s categorization within the valuation hierarchy is based upon thelowestlevelofinputthatissignificantto thefairvaluemeasurement.
The threelevelsareexplainedasfollows:
Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliableevidenceoffairvalueandshallbeusedto measurefairvaluewheneverpossible.
Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directlyorindirectly,forsubstantiallythe fulltermofthe financialinstrument.
Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available, thereby allowing for valuations in situations in which there is little, if any, market activity for the asset or liability at themeasurement.
Thousands)
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments (continued)
Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense for the years ended December 31, 2023and2022was$97and$99,respectively.
Off Balance Sheet Financial Instruments
In the ordinary course of business, VolCorp enters into commitments to extend credit. Such financialinstruments arerecordedwhentheyarefunded.
Subsequent Events
VolCorp evaluated all events or transactions that occurred after December 31, 2023, through June 4,2024,thedatetheseconsolidatedfinancialstatements wereavailable to beissued.
Reclassifications
Certain items in prior financial statements have been reclassified to conform to the current presentation.Thereclassifications hadno impactonnetincomeormembers’equity.
Recent Accounting Standards
On January 1, 2023, VolCorp adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended, which replaces incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized costs, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. In addition, ASC 326 made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses be presented as an allowance rather than as a write down on available-for-sale debt securities management does not intendtosellorbelievesthatitismorelikelythannotthattheywillberequiredto sell.
VolCorp adopted ASC 326 using themodifiedretrospectivemethodforallfinancialassets measured at amortized cost, and off-balance sheet credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The adoption of ASC 326 did not have a materialimpactonthe consolidatedfinancialstatements ofVolCorp.
Note 3: SECURITIES AVAILABLE FOR SALE
The amortized cost and approximate estimated fair value of securities available for sale and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss)atDecember31,2023 and2022 wereasfollows: GrossGross
Asset-backed securities consist primarily of securitized credit card, student loan, mortgage, automobile dealer floor plan receivables and other assets.At year end 2023, there were holdingsof $33,803 in securities issued by Discover Card Execution Note Trust that exceeded 10% of members’ equity. There were no other holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of members’ equity. At year end 2022, there were holdings of $33,750 in securities issued by Discover Card Execution Note Trust, $14,973 in securities issued by Capital One Multi-Asset Executive Trust, and $14,806 in securities issued by American Express Credit Account Master Trust that exceeded 10% of members’ equity. There were no other holdings of securities of any one issuer, other than the U.S. Government and its agencies,inanamountgreaterthan10% ofmembers’equity.
VolCorpsoldno securities duringtheyears endedDecember31,2023 and2022.
Note 3: SECURITIES AVAILABLE FOR
SALE
(Continued)
The amortized cost and estimated fair value of securities available for sale at December 31, 2023, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.
Information pertaining to securities with gross unrealized losses for which an allowance for credit losses has not been recorded at December 31, 2023, aggregated by investment category and length of time that individual securities have been in a continuous loss position, are as follows:
At December 31, 2023, VolCorp had 93 securities in a loss position. Unrealized losses on debt securities have not been recognized into income because the issuers’ bonds are of high credit quality, management does not intend to sell, it is likely that management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. The issuers continue to make timely principal and interest payments on the bonds. The fair value is expected to recover as the bonds approach maturity. As a result, VolCorp has determined that an allowance for credit losses for debt securities is not necessary as of December 31, 2023.
Thousands)
Note 3: SECURITIES AVAILABLE FOR SALE (Continued)
In determining the allowance for credit losses for debt securities, management considers many factors, including: (1) the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether VolCorp has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an allowance for credit losses is necessary involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.
Information pertaining to securities with gross unrealized losses at December 31, 2022 aggregated by investment category and length of time that individual securities have been in a continuous loss position,follows:
December31,2022
$74,647353 $
$ 161,37311,306 $ Asset-backedsecurities60,34722420,4051,26480,7521,488 Mortgage-backedsecurities185,7413,90071,0532,248256,7946,148 SBA-backedsecurities135,7041,5978,878120144,5821,717
Total
At December 31, 2022,VolCorphad96 securities inalossposition.Theunrealizedlosses associated with these investments are primarily driven by changes in interest rates and are not related to the credit quality of the securities. VolCorp does not intend to sell these securities, and it is not likely they will be required to sell the securities before the amortized cost basis is recovered, which may beatmaturity.
Note 4: INVESTMENT IN CREDIT UNION SERVICE ORGANIZATIONS
VolCorp’s investmentinCUSOs atDecember31,2023and2022 wereas follows:
Investments in CUSOs are accounted for under the equity method based on VolCorp’s percentage ofownershiporthe abilitytoexertsignificantinfluenceoverthe CUSOs.
Note 5: FAIR VALUE MEASUREMENTS
The following table presents the assets carried at fair value subject to measurement on a recurring basis. Assets are presented as of December 31, 2023 and 2022, by their nature and by FASB ASC 820, FairValueMeasurementsandDisclosures, valuationhierarchy:
December31,2023
December31,2022
Therewereno liabilities carriedatfairvaluefor2023and2022.
The following valuation method was used for assets carried at fair value as of December 31, 2023 and2022.
U.S. Government agency securities, asset-backed securities, mortgage-backed securities, and SBA-backed securities – fair values are estimated using pricing models that use observable inputs or quoted prices of securities with similar characteristics. These securities are classifiedwithinLevel2 ofthevaluationhierarchy.
Note 6: PREMISES AND EQUIPMENT
Premises andequipmentatDecember31,2023and2022,respectivelywereasfollows:
Depreciation expense was $656 and $661 for the years ended December 31, 2023 and 2022, respectively.
Note 7: MEMBERS’ DEPOSITORY ACCOUNTS
At December 31, 2023 and 2022, the balances of the various types of members’ depository accounts areas follows:
Sharecertificatesas ofDecember31, 2023arescheduledtomaturewithinoneyear.
At December 31, 2023, two members’ deposit accounts totaled $198,546 and represented 15.97% of total member depository accounts. At December 31, 2022, two members’ deposit accounts totaled $181,648 and represented 15.83% of total member depository accounts. The aggregate amount of members’ depository accounts over $250 as of December 31, 2023 and 2022 was approximately$1,182,047 and$1,082,655,respectively.
Thousands)
Note 8: BORROWINGS
VolCorp, as a member of the FHLB of Cincinnati, is eligible for advances from this bank pursuant to the terms of various borrowing agreements. VolCorp has pledged 88 securities, with a carrying value of $408,946 as collateral under the borrowing agreement with the FHLB of Cincinnati as of December 31, 2023. At December 31, 2022, VolCorp had 104 securities pledged with a carrying valueof$775,584ascollateralunderthe borrowingagreementwiththeFHLBofCincinnati.
At December 31, 2023, there was $100,051 of overnight borrowings outstanding on this line of credit with a fixed rate of interest of 5.38% and a maturity date of January 2, 2024. At December 31, 2022, there was $178,757 of overnight borrowings outstanding on this line ofcreditwitha fixed rate of 4.33% and a maturity date of January 3, 2023. Based on related collateral and VolCorp’s holdings of FHLB stock, Volcorp is eligible to borrow $278,539 of additional funds from the FHLB of CincinnatiasofDecember31,2023.
VolCorp maintains a federal funds line of credit with one regional bank. Securities with a carrying value of $100,880 and $98,046 were pledged as collateral with this bank at December 31, 2023 and 2022, respectively. No amounts were outstanding under this line of credit at December 31, 2023 or 2022, and borrowing availability totaled $70,000. This agreement may be cancelled at the discretion of either party. Effective June 30, 2023, VolCorp renewed an unsecured federal funds facility from another regional bank with a borrowing availability of $15,000. This agreement expires on June 30, 2025. No amounts were outstanding under this line of credit at December 31, 2023 or 2022.
On May 31, 2023, VolCorp entered an agreement for secured borrowings from the Federal Reserve Discount Window. Securities with a carrying value of $228,784 were pledged as collateral at December 31, 2023. Principal of $203,000 was outstanding under this borrowing agreement at December31,2023 ataninterestrate of4.76% andwitha maturitydateofJune25,2024.
Note 9: REGULATORY CAPITAL REQUIREMENTS
VolCorp is subject to various regulatory capital requirements administered by the NCUA. Failure to meet minimum capital requirements can initiate certain additional actions by regulators that, if undertaken, could have a direct material effect on VolCorp’s consolidated financial statements. Failure to meet minimum capital requirements would require VolCorp to submit a plan of action to correct the shortfall. Additionally, the NCUA could require an increase in capital to specific levels, reductionofinterest,andceasingorlimitingVolCorp’s abilityto acceptdeposits.
Beginning October 2016, a portion of PCC is excluded from Tier 1 capital as defined by the NCUA. The portion of PCC also reduces daily average net assets and monthly moving average net riskweighted assets for the applicable ratio calculations. NCUA Regulations as of December 22, 2017 were modified to include all PCC received from federally insured credit unions when the corporate creditunion’sretainedearnings ratioisgreaterthan2.50%.
Note 9: REGULATORY CAPITAL REQUIREMENTS (Continued)
AtDecember31, 2023and2022,VolCorp’scapitalratios wereasfollows:
2023
(1)torollingdailyaveragenetassets (2)tomovingmonthlyaveragenetrisk‐weightedassets
The retained earnings ratio is key in maintaining capital adequacy in compliance with NCUA regulations. Beginning in October 2013, NCUA regulation 704.3 requires corporate credit unions to calculate and report a retained earnings ratio of at least 0.45%. VolCorp’s retained earnings ratio at December31,2023 and2022 was 7.42% and4.60%,respectively.
U.S. Central Federal Credit Union Recovery Claim Certificates
On October 5, 2010, VolCorp was issued recovery claim certificates of approximately $59,500 for membership capital accounts and recovery claim certificates of approximately $12,975 for paid in capital accounts at to U.S. Central Federal Credit Union previously depleted through recognition of losses. U.S. Central Federal Credit Union was placed into liquidation on October 1, 2010. During 2023 and 2022, VolCorp recognized $9,001 and $23,924 of corporate credit union liquidation distributions related to the recovery claim certificates upon receipt of the distributions. No capital dividends related to member natural person credit unions that recognized losses as a result of U.S. CentralFederalCreditUnion’sliquidationwere paidduring2023or2022.
Based on the discretion of the NCUA and its projections, the remaining paid in capital recovery claim certificates of approximately $6,890 may be satisfied by distributions during future periods. VolCorp recognizes income from corporate credit union liquidation distributions during the period distributed funds are received. As of December 31, 2023, all recovery claim certificates related to membershipcapitalaccounts havebeenredeemed.
Note 10: RELATED PARTY TRANSACTIONS
Each of the directors of VolCorp is affiliated with credit unions that, in the ordinary course of business, may engage in financial transactions with VolCorp. Outstanding balances of members’ share accounts with these related parties were $228,200 and $166,822 at December 31, 2023 and 2022, respectively. Outstanding loan balances with these related parties were $782 and $15,000 at December31,2023 and2022,respectively.
Note 11: EMPLOYEE BENEFITS
VolCorp maintains two defined contribution plans. All full-time employees who have been employed at least one monthareeligibleto participate intheplans.VolCorpcontributes anamount equal to 3% of each participant’s eligible compensation to the 401(k) employee savings plan. Under the retirement savings plan, VolCorp contributes an amount equal to 7% of each participant’s eligiblecompensationtotheplan.Benefits arefullyvestedoneyearfrom a participant’s hiredate.
VolCorp made contributions to the retirement savings plan of $607 and $483 during the years endedDecember31,2023and2022, respectively.
The Credit Union has two collateral assignment split dollar agreements between the Credit Union and akeyemployee. Theagreements involvea methodofpayingforinsurancecoveragebysplitting the elements of a life insurance policy. Under the agreements, the employee is the owner of the policies and made collateral assignments to the Credit Union in return for loans equal to the amount of premiums to be paid on behalf of the employee plus accrued interest at the applicable long-term federal rate when placed into effect in 2017 plus an additional 19 basis points. At the time of death of the key employee, the Credit Union will be paid the loan amounts plus accrued interest and the balance of the insurance benefits will be paid to the designated beneficiaries. As of December 31, 2023 and 2022, the balance of the loan approximated $6,059 and $5,985, respectively,andis includedinaccruedinterestreceivableandotherassets onthebalancesheets.
Thousands)
Note 12: COMMITMENTS, CONTINGENCIES AND OFF BALANCE SHEET ACTIVITIES
In the normal course of business, there may be various outstanding legal proceedings or potential claims. In the opinion of management, after consultation with legal counsel, the financial position of VolCorp will not be affected materiallyby the outcomeofanysuchlegalproceedings orpotential claims.
Some financial instruments, such as loan commitments, irrevocable letters of credit, and lines of credit, are issued to meet member-financing needs. These are agreements to provide credit or to support the credit of others as long as conditions established in the contract are met and usually have expiration dates. Commitments may expire without being used. These instruments contain, to varying degrees, elements of credit and market risk in excess of the amounts recognized in the balance sheets. The credit risk relates to the possibility that a loss may occur from the failure of anotherpartyto performaccordingtotheterms ofacontract.
The market risk relates to the possibility that future changes in market prices may make a financial instrument less valuable or more onerous. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral upon exercise of the commitment. The contractual amount of financial instruments with off balance sheet risk at December31,2023 and2022 wereasfollows:
December31, 2023 2022
ADDRESS
2460 AtriumWay Nashville,TN37214
ONLINE volcorp.org
vportfolio.org symphonycuso.org volcorpdesign.org
NUMBERS
(615)232-7900
(800)470-3444
AfterHours:(615)232-7977
OperationsFax:(615)232-7979
EXTENSIONS
1-MemberServices/Operations/ItemProcessing/ACH
2-InvestmentSales
3-Marketing andBusinessDevelopment
4- Administration andPresident’sOffice
8-Symphony CUSO
9-DialByNameDirectory
0-Operator
HOURS
Monday,Tuesday,Wednesday and Friday: 7:30 a.m. to 4:30 p.m. (Central time).
Thursday: 8:30 a.m. to 4:30 p.m. (Central time).
Our Member Services Department closes at 4:15 p.m. (Central time) each day. Office closings are coordinated with the Federal Reserve Bank holiday schedule.